The FTSE 100 closed the week down 1% at 2685 with the Aim All Share drifting marginally lower to 657.7. It seems certain that an economic recovery is already in the FTSE 100 but less certain that this Government have borrowing and inflation under control.

Economics may be a bit dull this week. On Tuesday the US will report Third Qtr GDP which is likely to show annualised growth of 3% but US consumer confidence may have slipped. On Thursday the US is closed for Thanks Giving. Markets may need some corporate action to maintain investor interest.

COMPANY REPORTS

Prime People (PRP) – £4.18m@35p – International real estate, infrastructure and commercial property recruitment specialist
Interims losses of £46,000 before exceptionals compare poorly with the profit of £1m last year but certainly an improvement on the loss of £263k for the last six months. The results reflect the challenging global market conditions. Administration costs at £3.2m were 43% lower as the management and organization has been reduced to reflect the level of business expected and should be profitable in the second half.

Prime Insight, is a new divisions which specialises in the placement of insight professionals (market research) continues to make steady progress. This was started in October 08 and its incubation provides a business model from which to grow other new recruitment businesses.

There are sign of modest, economic recovery in global activity with increased interest in property as a yielding asset class most noticeable in the UK and Far East. Although profits can be expected it could be struggled to make the £600k forecast by house brokers Cenkos, which give an EPS of 3.32p and a prospective P/E of 10x. The market cap however is not seem that expectant.

Financials
Prime People have a strong net cash position of £1.81million (2008: £1.07million) and is positioned to be able to exploit both cyclical opportunities that may present themselves and the upturn in its markets when they come.

Interlek (ITK) – £13.4m@15.5p – Designer and manufacturer of electronic systems for satellite and microwave communications and specialist manufacturer for the aerospace market
Interims reported a pre-exceptional 35% reduction in PBT. Profits fell to £1.33m compared to £2.05m as sales were 10% lower at £16.9magainst £18.8m. This is a reasonable defensive performance relative to the dramatic global downturn affecting the commercial markets.

There are three divisions

Satellite Communications Equipment – Paradise Datacom – 48% of sales, Microwave Components and Manufacturing Services – Labtech – 21% of sales and Aero structures – CML 30% of sales.

After a slow first quarter all divisions reported improvement as the focus is increasingly being aligned with large defense and security programmes and away from the commercial sector. Profits for the March 2010 are forecast at £3.35m on revenue of £38m, giving EPS of 2.75p so a P/E of 5.6x yielding 3.2%. Two out of the three analysts that have a buy recommendation have it as a Strong Buy. The company’s strategy is for more of the same but may look to supplement organic growth with acquisitions which is dilution that should not be necessary at this stage.

Financials
Net debt increased by £1.3m to £5.1m, inventory levels have been reduced by 21% since the year end. Working capital has, however increased elsewhere as some customers and suppliers are requiring enhanced terms in these challenging times. At £5.1m debt levels remain comfortable with interest cover for the first half year at 17.3 times.

Lok’nStore (LOK) – £19.5m@72.5p – Self-storage operator
Lok’nStore is trading at a lot less than one-half of its net asset value.

The self storage operator’s net asset value, after a property revaluation, was 207p a share at the end of July 2009. That is down from 244p a share a year ago but it still provides a solid base for the company. Even if deferred tax is subtracted, the NAV is still 166p a share. The shares are trading at a 59% discount to the post-deferred tax NAV. The shares do not look like moving all the way towards the NAV level but an improvement in investor confidence could lead to interest at this level.

Lok’nStore reported an 8% decline in revenues to £10m in the year to July 2009. The loss fell from £741,000 to £656,000, although the previous year’s figure included a £311,000 goodwill write-down. Marketing and other costs were reduced while interest charges fell in line with interest rates.

There was some weakness in prices per square foot. Occupancy levels have recovered to 52% of lettable space and prices could also start to recover. The newest site at Harlow was breaking even after seven months.

Mintel estimates that the UK self-storage market has been growing at rates between 8% and 15% over the past five years. There appears further scope for growth as the economy recovers.

Hardman forecasts a £100,000 profit on revenues of £10.3m in 2009-10.

Finance
Net debt was £24.8m at the end of July 2009 compared the valuation of the property portfolio of £78.4m. There are available facilities of £11.9m and the total facility lasts until 2012. Lok’nStore operates 21 self-storage centres and has four new sites with planning permission, including relocations for Reading and Southampton. Management is cautious and does not intend to open these sites yet. That means capital investment could be low this year thereby allowing to the company to reduce its debt levels via operational cash flow.

The dividend of 1p a share will cost £250,000. That is nearly seven times covered by last year’s operational cash flow.

Lok’nStore is asking shareholders for permission to buy back up to 21.8% of its shares, which could help to put a floor under the share price. This is the same number of shares that Lok’nStore was previously allowed to buy back but it did not buy any last year despite the fall in the share price.

Eruma (ERU) – £1.88m@1p – Security blinds, emergency lighting
Eruma is focusing more on the cross-selling opportunities of the security blinds and emergency lighting businesses.

The security blinds business offers bomb blast protection – sales cycle 3-6 months – as well as well as preventing burglars gaining access – sales cycle 3-12 months. Eruma has won its first orders through its partnership with window films supplier Pentagon Protection. The newest product is a way of preventing ram raids.

The Illuminex emergency lighting business can help customers reduce their electricity usage and also offers remote checking of units. An important contract has been won with Ealing primary care trust. Management is optimistic that this contract could be extended. The sales cycle can be much longer in this business.

Finance
Eruma has raised £775,000 from share issues this year as well as £280,000 from a 10% convertible loan note. A further £720,000 can be raised through the convertible but there are no plans to do that.

Fusion IP (FIP) – £14.3m@34p – University IP commercialisation
IP Group is taking a 19.8% stake in Fusion IP as part of a £3m net placing at 27p a share. Citigroup Capital Ventures has ended its co-investment agreement with Fusion IP and sold its 6.3% stake. Aim-quoted investment company Brookwell sold its stake at the same time. These shares were placed at 27p each. CCV still holds 3.675m warrants exercisable at between 150p and 220p a share – well above the current share price.

The deal will enable IP Group to take 20% of any new stake Fusion IP takes in a university spin-out. This will normally equate to a 12% stake in the spin-out company and it will cost IP Group £60,000. Fusion IP will retain 48% of the spin-out, there by not having to consolidate it as a subsidiary. The original inventors or developers of the technology receive the other 40% of the start-up.

IP Group has to invest in the seed funding round of these spin-outs on the same terms as Fusion IP. It will invest 20% of the amount that Fusion IP has undertaken to invest in the company if the investment is in excess of £200,000. Fusion IP is also keen to utilise IP Group’s expertise.

Fusion IP has exclusive rights to the commercialisation of research generated by The University of Sheffield and Cardiff University. Fusion IP initially focused on medical research but it has been widening the scope of technologies that it is commercialising. There are currently 20 spin-outs in the Fusion IP portfolio and it intends to add two or three new ones each year. The current portfolio has a relatively modest book value of £6.4m, including loans.

Fusion IP has a net asset value of £23.7m, including intangible assets of £15m, at the end of July 2009.

Finance
There was £5m in the bank at the end of July 2009, which included cash in consolidated subsidiaries. Management hopes to achieve one exit from an investment in the next year or so with additional exits coming in 2011-12. This will help finance more spin-outs.

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